20. Notes march 25

March 25, 2009 § Leave a comment

This must be one of the most complex periods in lived american history. Everything seems at play.

Obama Told Us To Speak Out, But Is He Listening?

The president is getting what he asked for, but perhaps not what he had in mind. During the campaign, Barack Obama beckoned Americans to put aside their cynicism about politics and re-engage as active citizens. They are now doing so with red-hot anger. They are outraged by events and forcing their way into congressional affairs and behind closed doors where policy wonks discuss issues with cerebral civility. The president is now trapped between these two realms — the governing elites who decide things and the people who are governed. Which side is he on? If he does not choose wisely, the anger could devour his presidency.

And, solid policy, simple

Revival requires a broad spread of demand

Soros, always beyond mere finance.

Peripheral care should be the central concern

By George Soros

Published: March 22 2009 18:21 | Last updated: March 22 2009 18:21

The forthcoming Group of 20 meeting is a make-or-break event. Unless it comes up with practical measures to support the less developed countries, which are even more vulnerable than the developed ones, markets are going to suffer another sinking spell just as they did last month when Tim Geithner, Treasury secretary, failed to produce practical measures to recapitalise the US banking system.

This crisis is different from all the others since the end of the second world war. Previously, the authorities got their act together and prevented the financial system from collapsing. This time, after the failure of Lehman Brothers last September, the system broke down and was put on artificial life support. Among other measures, both Europe and the US in effect guaranteed that no other important financial institution would be allowed to fail.

This necessary step had unintended adverse consequences: many other countries, from eastern Europe to Latin America, Africa and south-east Asia, could not offer similar guarantees. As a result, capital fled from the periphery to the centre. The flight was abetted by national financial authorities at the centre who encouraged banks to repatriate their capital. In the periphery countries, currencies fell, interest rates rose and credit default swap rates soared. When history is written, it will be recorded that – in contrast to the Great Depression – protectionism first prevailed in finance rather than trade.

Institutions such as the International Monetary Fund face a novel task: to protect the periphery countries from a storm created in the developed world. Global institutions are used to dealing with governments; now they must deal with the collapse of the private sector. If they fail to do so, the periphery economies will suffer even more than those at the centre, because they are poorer and more dependent on commodities than the developed world. They also face $1,440bn (€1,060bn, £994bn) of bank loans coming due in 2009. These loans cannot be rolled over without international aid.

Gordon Brown, the UK prime minister, recognised the problem and designated the G20 meeting to address it. Yet profound attitudinal differences have surfaced, particularly between the US and Germany. The US has recognised that the collapse of credit in the private sector can be reversed only by using the credit of the state to the full. Germany, traumatised by the memory of hyperinflation in the 1920s, is reluctant to sow the seeds of future inflation by incurring too much debt. Both positions are firmly held. The controversy threatens to disrupt the meeting.

Yet it should be possible to find common ground. Instead of setting a universal target of 2 per cent of gross domestic product for stimulus packages, it is enough to agree that the periphery countries need aid to protect their financial systems. This is in the common interest. If the periphery economies are allowed to collapse, the developed countries will also be hurt.

As things stand, the G20 meeting will produce some concrete results: the resources of the IMF are likely to be doubled, mainly by using the mechanism of the “new arrangements to borrow”, which can be activated without resolving the vexed question of reapportioning voting rights.

This will be sufficient to enable the IMF to help specific countries at risk but it will not provide a systemic solution for the less developed countries. Such a solution is readily available in the form of special drawing rights. SDRs are complex but they boil down to the international creation of money. Countries that can create their own money do not need them but periphery countries do. The rich countries should therefore lend their allocations to the nations in need.

Recipient countries would pay the IMF interest at a very low rate, equivalent to the composite average treasury bill rate of all convertible currencies. They would have free use of their own allocations but would be supervised in how the borrowed allocations were used to ensure they were well spent.

In addition to the one-time increase in the IMF’s resources, there ought to be a big annual issue of SDRs, of say $250bn, as long as the recession lasts. It is too late to use the April 2 G20 meeting to agree this, but if it were raised by President Barack Obama and endorsed by others, this would be sufficient to give heart to the markets and turn the meeting into a resounding success.

The writer is chairman of Soros Fund Management and author of the forthcoming The Crash of 2008 (PublicAffairs 2009)

A good article on the lobbyists. Note the building idea that ther is a real win-lose in the current situation. I would put it, democracy vs. kelptocracy.

Volume 56, Number 6 · April 9, 2009

Washington: Will the Lobbyists Win?

By Michael Tomasky

So Damn Much Money: The Triumph of Lobbying and the Corrosion of American Government

by Robert G. Kaiser

Knopf, 398 pp., $27.95

After the passage of the $787 billion stimulus bill in mid-February, the Obama administration entered what we might call its second phase in that month’s final week, when the President spoke to a joint session of Congress on February 24 and, two days later, unveiled his first draft budget of more than $3.5 trillion. Rudolf Goldscheid, an early-twentieth-century Austrian Jewish sociologist and reformer, once said, “The budget is the skeleton of the state stripped of all misleading ideologies.” Although we don’t really talk that way anymore, the remark’s meaning still holds true today: the budget is the document through which an administration announces just what sort of polity it envisions, and which fights it is willing to take on to realize that vision…..

The O

In his address to Congress last month, he promised, “This is not about helping banks, it’s about helping people.” The first half of his statement is demonstrably not true, as people see for themselves and as bankers parade their arrogant excess. The second half is merely wishful.

What’s changed the president’s situation? During the past nine months, gigantic financial bailouts amid collapsing economic life made visible the crippling divide between governing elites and citizens at large. People everywhere learned a blunt lesson about power, who has it and who doesn’t. They watched Washington rush to rescue the very financial interests that caused the catastrophe. They learned that government has plenty of money to spend when the right people want it. “Where’s my bailout,” became the rueful punch line at lunch counters and construction sites nationwide. Then to deepen the insult, people watched as establishment forces re-launched their campaign for “entitlement reform” — a euphemism for whacking Social Security benefits, Medicare and Medicaid.

I am going to read more on Italian Fascism. To finsih with Greider (whose new book I just ordered)

Whatever the intentions, this “reform” would effectively legitimize the existence of a corporate state. This concentrated power would be neither socialism nor capitalism, but a grotesque hybrid that combines the worst qualities of both systems. Government and politics would become even more responsive to big money, but also able to tamper intimately with private enterprise, picking winners and losers based on political loyalties, not on performance. Capitalism with its inherent tendency toward monopoly would have the means to monopolize democracy.


. Some of your administration’s moves have appeared to validate key elements of Bush’s anti-terror strategy — quite a surprise given your stated positions during the campaign. For instance, there was your Justice Department’s support for an outrageously broad application of the state secrets privilege in a case in California, and the recent assertion of your right to hold certain prisoners indefinitely, without charge. Are these just short-lived aberrations that you intend to resolve after some more due diligence? Or have you found that the exigencies of national security make things a little less black and white than you expected?


Despite all [Adam] Smith did to explain and defend the constructive role of the market, he was deeply concerned about the incidence of poverty, illiteracy and relative deprivation that might remain despite a well-functioning market economy. He wanted institutional diversity and motivational variety, not monolithic markets and singular dominance of the profit motive. Smith was not only a defender of the role of the state in doing things that the market might fail to do, such as universal education and poverty relief (he also wanted greater freedom for the state-supported indigent than the Poor Laws of his day provided); he argued, in general, for institutional choices to fit the problems that arise rather than anchoring institutions to some fixed formula, such as leaving things to the market.

And, looking ahead to complexity and scale issues

But where So Damn Much Money really stands out is in the chapters that trace the broader trends that Cassidy’s rise represented. Kaiser explains how earmarks became routine. He describes the explosion in the number of political action committees after the post-Nixon campaign finance reforms of 1974. He surveys the astounding increases in the costs of campaigns, from $77 million for all Senate and House campaigns in 1974 to $343 million just eight years later, with costs for television ads accounting for much of the difference.[3] He discusses the rise of the new class of political consultants and the new technologies they began to use, the incessant polling and focus-grouping we know so well today. He analyzes the appearance of what the journalist Sidney Blumenthal termed, in 1980, the “permanent campaign,” which turned lawmaking into a nonstop battle for partisan advantage

So Damn Much Money is how recent these more toxic developments are. Kaiser writes that some of the main trends he describes—such as earmarks and political action committees—began in the 1970s, and that’s true. But the really big money didn’t start infiltrating the system until the mid-1980s. The most blatant excesses didn’t arrive until a decade later, and many of the Republicans responsible for them are now at worst in jail and at best out of power. And unless Obama really screws up or the economy gets even worse than most experts imagine, they appear unlikely to be back in power again anytime soon.

Now comes a very serious charge..

Will Geithner and Summers Succeed in Raiding the FDIC and Fed?, by Jeffrey Sachs, Vox EU: Geithner and Summers have now announced their plan to raid the Federal Deposit Insurance Corporation (FDIC) and Federal Reserve (Fed) to subsidize investors to buy toxic assets from the banks at inflated prices. If carried out, the result will be a massive transfer of wealth — of perhaps hundreds of billions of dollars — to bank shareholders from the taxpayers (who will absorb losses at the FDIC and Fed). Soaring bank share prices on the morning of the announcement, and in the week of leaks and hints that preceded it, are an indication of the mass bailout at work. There are much fairer and more effective ways to accomplish the goal of cleaning the bank balance sheet


By Peter Griffiths LONDON, March 25 (Reuters) – Tens of thousands of people will march through London on Saturday to call on G20 leaders to reform the global economy to help fight poverty, inequality and climate change, according to organise

And, a return to the pre-status quo means no essential change and the opportunity is lost.

by Matt Yglesias:

My biggest concern about the PPIP approach to the banking system is that even if it works, what it does essentially is return us to the pre-crisis status quo — banks that are so large that they’re too politically powerful to regulate effective and too systemically important to be allowed to fail. That’s a recipe for dishonest transactions that produce short-term profits at the cost of blowups. One appealing element of nationalization is that it can easily be made to end in a world in which there is no institution named “Bank of America” or “Citi” and no such gigantic institution.


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You are currently reading 20. Notes march 25 at Reflections on GardenWorld Politics Douglass Carmichael.


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